ATFX Summary: The backbone of Australia's economy is ore exports. Today, the futures prices of iron ore, bauxite, and copper mines continue to fall sharply. Australia's net exports in October dropped to 43.05 billion Australian dollars, a year-on-year decrease of 3%, of which ore

ATFX summary: The backbone of Australia's economy is ore exports. Today, the futures prices of iron ore, bauxite, and copper mines continue to fall deeply. Australia's net exports in October dropped to 43.05 billion Australian dollars, a year-on-year decrease of 3%, of which ore products A 23% drop was the main reason for the poor performance. The Australian dollar is a commodity currency, and its currency value will also shrink significantly when commodity futures collectively weaken. Recently, the Australian dollar has fallen sharply against mainstream currencies, such as the US dollar, euro, Canadian dollar, etc. The impact of commodity prices on the Australian dollar can be seen.

Australian ten-year government bond yields

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Currency depreciation is often accompanied by a decline in bond yields. The Australian ten-year government bond yield has fallen from a high of 1.983% (November) to the current level of 1.605%, a decrease of 37.8 basis points. The reason for the fall in bond yields is the same as the reason for the fall in the value of the Australian dollar - a setback in commodity exports. Therefore, if you want to know when the Australian dollar will stop falling and rebound, you need to analyze the future price trends of commodities, especially iron ore.

Iron ore inventory data

Picture provided by ATFX

According to mysteel data, the total iron ore inventory in 54 domestic ports is 154 million tons, which has exceeded last year's peak. Judging from the chart above, the curve has failed to show a top signal, and inventories will continue to expand. Australia's total exports are still expected to decline. What needs to be reminded is that when the inventory is high, there will be times when it is low. The current high inventory cannot last forever and will inevitably decline at some point in the future. Taken together, iron ore will fall in the short term, and iron ore will eventually strengthen in the long term (the turning point has not yet come, this is just a logical analysis).

Australian CPI

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Although Australia's CPI is 2% higher than the regulatory target, overall inflation is much milder than the 6.2% in the United States and 4.9% in the Eurozone. Although the mainstream view in the market is that the Federal Reserve's reduction in monthly bond purchases will lead the Reserve Bank of Australia to reduce QE, in reality, Australia does not face the risk of losing control of prices, and its willingness to tighten monetary policy is not strong.

Australia's unemployment rate suddenly rose to 5.2% in October. You must know that its September data was only 4.6%. It is still unclear whether the increase in unemployment rate is temporary or permanent. If the unemployment rate worsens further, the depreciation pressure on the Australian dollar will be greater.

summary: The analysis idea of ​​commodity currency is different from other currencies. We cannot only focus on CPI, unemployment rate and the monetary policy of the central bank, but also need to pay attention to the country's import and export situation. If export growth is strong, the local currency tends to appreciate; otherwise, the local currency tends to depreciate. Of course, this analysis only applies to countries where exports account for a high proportion of GDP, such as Australia.

ATFX risk warning and disclaimer: The market is risky, so investment needs to be cautious. The above content only represents the views of analysts and does not constitute any operational advice.

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